OCC Reports on Risks, Effects of COVID-19 Pandemic on Federal Banking System

Summary

The Office of the Comptroller of the Currency (OCC) today reported the key issues facing the federal banking system and the effects of the COVID-19 pandemic on the federal banking industry in its Semiannual Risk Perspective for Fall 2021.

Banks are weathering the COVID-19 crisis with resilience and satisfactory credit quality and strong earnings, but weak loan demand and low net interest margins (NIM) continue to weigh on performance. The OCC highlighted operational, credit, compliance, and strategic risks, among the key risk themes in the report.

Highlights from the report include:

• Operational risk is elevated as banks respond to an evolving and increasingly complex operating environment and cyber risks.
• Credit risk is moderate as widespread government programs and appropriate risk management limited the potential credit impact, though some areas warrant continued attention.
• Compliance risk is heightened, driven by regulatory changes and policy initiatives that continue to challenge risk management.
• Strategic actions taken by banks to offset earnings impacts of low yields and NIM compression remain a risk.

The report also highlights an OCC initiative to act on the risk that climate change presents to the federal banking system.